MQM's shadow budget, Business Recorder

This is probably for the first time in the history of Pakistan that a political party has done some serious homework and presented a shadow budget, a few days before the announcement or unveiling of actual budget, for government's consideration. Unveiling the party's 'budget' at a press conference in Islamabad on 27th May, 2012, MQM leader in Parliament, Dr Farooq Sattar, proposed the total outlay of the Federal Budget for FY13 at Rs 3.61 trillion some 30 percent higher than the size of the budget for 2011-12, envisaging a rise of Rs 400 billion in direct taxes and increasing their share in total taxes from 32 percent to 45 percent.

The share of indirect taxes, which are generally regressive, would thus be consequentially reduced from the present level of 68 percent to 55 percent. The outlay for the next year would be 30 percent higher than the budget for the current fiscal, with resource availability estimated at Rs 3.21 trillion against Rs 2.95 trillion for the outgoing fiscal year. Net revenue receipts for 2012-13 have been estimated higher by 18 percent, and provincial share in revenues has been estimated at Rs 1.51 trillion, or 25 percent higher than the last year's. The overall expenditure for FY13 has been estimated at Rs 2.81 trillion, out of which non-development budget would be Rs 2.32 trillion while development budget would be Rs 0.5 trillion.

A reduction of 10 percent in defence budget and a sizable cut in civil expenditures have been proposed to counter prevailing economic challenges. The additional amount of Rs 400 billion to be collected includes Rs 100 billion through agricultural income tax, Rs 50 billion through Afghan transit trade, and Rs 50 billion through efforts aimed at curbing smuggling and under-invoicing. Improvement in monitoring, broadening the tax base and elimination of tax evasion would lead to generate another Rs 200 billion. The additional revenue generation would help bring the fiscal deficit down to Rs 575 billion from Rs 1.143 trillion.

Regarding individual tax measures, the MQM has proposed a reduction in sales tax from 16 percent to 12 percent, lowering of maximum rate of import duty to 10-15 percent with a minimum rate of 5 percent and abolition of SRO culture or system. Petroleum levy was proposed to be completely abolished and state-owned enterprises (SOEs) would be revived through public-private model to control their losses. All these measures would reduce fiscal deficit and have a positive trickle down effect. The common man will benefit through reduction in inflation. The price of 20-kg wheat flour bag would come down from Rs 600 to Rs 300 and that of gram pulse from Rs 115 to Rs 80.50 per kg. The shadow budget also proposes Rs 25 billion each for Benazir Income Support Programme and Benazir Income Generation Programme.

In our view, the MQM has shown a great deal of maturity by presenting a shadow budget at the right time. It has listed a mix of policies which may not be popular with the general public, especially the rural electorate, or the armed forces, but definitely deserves attention of country's fiscal policy planners. It also needs to be highlighted that, unlike other opposition parties who talk in generalities on the subject with all sorts of goodies to be offered at the time of their assumption of power, the MQM has, like the actual budget, tried to balance the books with credible numbers and refrained from populist measures or unnecessary rhetoric. Besides, undue criticism on the existing fiscal policies of the present government has been avoided with a view not to defaming the authorities at the helm and glorifying MQM's standpoint. The measures proposed in the shadow budget also reflect the desire to reduce inequity in taxation and the will to deepen and widen the tax net along with the resolve to cut current expenditures, especially on defence, civil administration and subsidies. Collection of a huge amount from agricultural income tax, restructuring of SOEs and abolition of support price mechanism are of course commendable ideas. Also, all the revenue and expenditure proposals seem to have been specifically designed to rely mainly on domestic sources and reduce the budget deficit within reasonable limits so that price pressures could be reduced and the common man gets some relief.

However, while commending the budget exercise of the MQM, it is difficult to digest some statements and ignore certain realities. For instance, it would be impossible to collect Rs 100 billion agricultural income tax in the coming year when the present level is negligible and this tax falls within the domain of provincial governments. It is, therefore, needless to say that the provinces would be highly reluctant to displease the agriculturist lobby. Also, though the price pressures could be eased by a significant reduction in the budget deficit as proposed by the MQM, it is difficult to understand how the prices of wheat flour and gram pulse could come down by about 50 percent and 30 percent, respectively, from the present levels. It would also be almost impossible to reduce the defence budget at a time when the country is facing both external and internal threats. Besides, it would have been more suitable for the MQM, which is an important partner of the present PPP-led coalition government, to present its budgetary proposals to the cabinet for its consideration rather than use a public platform to voice its concerns. Anyhow, we would urge upon all the political parties to imitate the MQM's methodology of analytical thinking on the fiscal situation so that the standard of the forthcoming budget debate in the parliament is raised to a respectable level.